Section 27 of the Indian Contract Act, 1872

In one line

Section 27 declares every agreement in restraint of a lawful profession, trade or business void to that extent, subject to one exception for the sale of goodwill, and India has no reasonableness test, so a non-compete that bites after employment ends is almost always void.

The section, in full

"Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."

Exception 1, saving of agreement not to carry on business of which good-will is sold. "One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business."

There were once three Exceptions. Exceptions 2 and 3 were repealed by the Arbitration Act, 1940, section 73 and the Second Schedule. So the printed section carries one Exception and a blank.

Four words that decide everything

"Every agreement." No distinction between partial and total restraints, and no distinction by the nature of the parties.

"Restrained from exercising a lawful profession, trade or business of any kind." Wide. It covers employment, and it covers restraints on the manner of trading as well as on trading at all.

"To that extent void." The restraint clause is void; the rest of the contract survives. So a non-compete in an employment contract does not destroy the contract, and a confidentiality clause in the same document is unaffected.

And what is missing: "unreasonable". Section 27 contains no reasonableness qualification. That single omission is the whole difference between Indian and English law.

The contrast with England, which must be stated

English common law treats a restraint of trade as prima facie void but enforceable if reasonable, in the interests of the parties and of the public, judged by the legitimate interest protected, and by the duration, geographical extent and scope of the restraint. So an English employer with a genuine trade connection or trade secret to protect can enforce a properly drawn twelve-month non-compete.

Indian statutory law made a deliberate choice not to adopt that. The Law Commission of India recommended in its Thirteenth Report of 1958 that section 27 be amended to admit reasonable restraints, and the recommendation has never been enacted.

So the correct statement of Indian law is: reasonableness is irrelevant except within Exception 1. A restraint is void whether it is for two years or for two months, whether it covers India or a single city, unless it fits the exception.